C. Debit Cards

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 350-356

Page 350

Debit card operation in Canada is subject to voluntary industry codes of practice and to contract, but it is completely unregulated by legislation and unsupervised by any government department, agency, or corporation. The larger framework is found in the operating procedures of Interac Association, ACSS Rule E1 of the CPA in relation to clearing and settlement, and the Canadian Code of Practice for Consumer Debit Card Services, a voluntary industry code drafted by the Canadian Bankers Association, to which all the banks subscribe.¹¹

While the ACSS Rules and the Debit Card Code are publicly available, the Interac operating rules are proprietary and secret.¹²

The other component, of contract, is found in the bank and customer contract regulating debit card use, as well as in the multilateral contracts that the bank has in relation to the CPA and Interac.

The Interac Association was formed in November 1984 by the larger banks as a private corporation whose purpose is to own and oper-

Page 351

ate a national network of ABMs.¹³

The charter members were the direct clearers, who were members of the CPA and who invested in Interac and were directly connected to the shared services network. The original restricted nature of access to Interac for other banks and financial institutions prompted the Director of Investigation and Research in the Competition Bureau to complain to the Competition Tribunal on the ground of abuse of a dominant position in the supply of consumer-initiated electronic financial transfers on behalf of other financial institutions. The matter was resolved by a Consent Order on 20 June 1996, whereby Interac agreed to open access to other financial institutions and non-financial institutions to participate in the Interac network by performing functions such as acquiring or providing network connection and related data processing services to members.¹⁴

Interac specifies the standards for the functions, operation, and security of its network, and member institutions are responsible for acquiring or developing interface software and equipment that meet these standards. Member communication networks are linked to Interac by a gateway device, and Interac provides an online system of verification and authorization and links to ACSS for clearing and settlement in accordance with standards set by the CPA in Rule E1.

When a customer pays for goods or services at a POS with a debit card, the merchant first ascertains the price and prepares a message with the transaction details, including price, date, and time of the transaction, along with identifying information about the merchant, the customer, and the transaction. To pay, the customer slides the debit card through an Interac payment terminal, adds his unique PIN, and approves the transaction, designating the bank account from which funds are to be withdrawn. The PIN does not appear on the keyboard screen nor on the paper transaction record, to ensure its complete confidentiality. The customer information is immediately encrypted and is not stored in the transaction terminal. The PIN pad offers an opportunity to correct a mistake or cancel a transaction at any time prior to the receipt of authorization of the transaction.

Once the transaction message is encrypted, it is transmitted over a dedicated network provided by Interac to the customer’s bank, which must be a CPA member, where the card, PIN, and account are con-

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firmed, as well as the availability of funds in the account. The bank immediately either authorizes or refuses the transaction in real time by a return message over the same network and directs the transfer of funds from the customer’s account to the retailer’s account through the ACSS. The POS item is not a payment; rather, it authorizes the payment through the clearing and settlement system. If the transaction is authorized, the customer will receive a record of the transaction, which may be used to check the monthly statement of transactions in the account provided by the bank.

At the end of the day, the acquirer, that is, the person who owns and operates the Interac terminal, prepares a computer tape of all the claims against each account holder bank to aggregate all of the account holder’s transactions that day and then delivers the tape to a regional exchange centre for the account holder, as well as entering it into the ACSS. The ACSS calculates the net settlement amounts as between direct clearers, and these are added to the other net...